FRANKFURT Aug 8 Otmar Issing, one of the
founding fathers of the euro and a former European Central Bank
chief economist, says some states may not be able to remain in
the currency bloc in the long term but Germany would be better
off staying in.
In his book "How we save the euro and strengthen Europe",
which was published this week and is written as a dialogue
between the German economist and a journalist, Issing said a
euro collapse would have severe consequences.
"Everything speaks in favour of saving the euro area. How
many countries will be able to be part of it in the long term
remains to be seen," he said.
Asked in the book how strongly he was concerned about the
euro, he said: "Much more strongly than I could have ever
"We are still a long way off saying 'that's it, now we are
sure to make progress'. Substantial reforms in almost all
countries are still pending," Issing said.
Issing was one of the few founding fathers to have clearly
articulated the euro's flaws and said he was among those who
believed that a political union should have preceded the
currency union or at least have been created at the same time.
But a political union has yet to be achieved, even though
the severity of the currency bloc's crisis drove euro zone
leaders in June to agree a push for closer integration,
especially in managing government finances.
Issing said he increasingly understood why some called for a
return to their national currencies, but it would be an illusion
to believe that Germany, the bloc's largest economy, would be
better off with its own currency.
"That is not the case," he said. Even in its short
existence, the euro has been more stable than the mark, Issing
"One should focus on bringing the euro back to what it was
meant to be, a stable currency, stabilised by an independent
central bank, which follows a clear mandate, nothing else, and
that the other protagonists, especially national governments, do
their homework," Issing said.
Without explicitly referring to Greece, whose unsustainable
debt burden triggered the bloc's crisis three years ago, Issing
said it was legally impossible to throw a country out of the
currency union, but giving money to a government which did not
comply with rules and did not reform would put the bloc's
credibility at risk and set a bad example.
"One has to consider whether one can keep giving money to a
country that has not yet fulfilled an obligation, which is still
non-transparent, more or less fudges things," he said.
The debt crisis has also sucked in Ireland, Portugal, Spain
and Cyprus and is threatening Italy, the bloc's third biggest
economy. Some now see the ECB as the only federal institution
capable of rapid and massive intervention.
While the central bank said last week it was working on a
plan to launch a new government bond purchase programme to hold
down borrowing costs, it said it would only intervene once
countries had requested assistance and accepted strict
conditions and surveillance, and once euro zone governments had
activated their rescue funds.
With a political union still a long way off, Issing said it
was up to national governments to solve their own problems and
not to rely on mutualising debt or on the ECB too strongly.
"There is no quick fix and anything in the direction of
(jointly-issued) euro bonds or something similar would mean for
me the end of the stability-oriented currency union," he said,
emphasising the independence of the ECB, where he worked until
2006 and whose mandate focuses firmly on holding down inflation.
"The less politicians address the root of the problems, the
more they look with their expectations and demands to the ECB,
which is not made for this. It is a central bank and not an
institution to rescue governments threatened by bankruptcy. A
central bank always also acts as a lender of last resort for the
banking system - but it does not rescue governments."
"Exaggerated expectations alone can harm the prestige of the
institution," Issing said.